[kayzee997]

if a c corp distributes 200,000 to its sole shareholder (non liquidating) out of current e&p

and the shareholders basis is 50,000 before distribution

is the income realized as entirely dividend (since paid out of e&p only) or realized as part dividend and part reduction in basis/cap gain

[Anonymous]

@Kayzee997 – That depends on how much “Current E&P” and “Accumulated E&P” the corporation has. For example, the corporation has current E&P of $200,000 or more, then the entire distribution of $200,000 you mentioned would be taxable dividends. The only time the corporation's distribution reduces a shareholder's stock basis would be when there is not enough current E&P and accumulated E&P to cover for the distribution.

So assuming the same fact as the example I just provided except, the corporation has current E&P of $100,000 and accumulated E&P of $200,000 but distributes $500,000 of cash. There would be $300,000 taxable dividends (from current/accumulated E&P), and the rest of the distribution ($200,000) reduces the shareholder's stock basis of $50,000 to 0 (this is not taxable, it only reduces the basis and it's also called the return of capital). The remaining $150,000 would be taxed as a capital gain (long-term if it's more than a year).

I hope this helps!

[Author]

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